Residential Property Price Growth Slowing

Residential real estate prices saw moderating price growth for an eleventh month in a row, according to the latest figures from property data provider Clear Capital. Nationally, yearly …

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Residential real estate prices saw moderating price growth for an eleventh month in a row, according to the latest figures from property data provider Clear Capital.

Nationally, yearly gains decreased from a high of 11.7% in October 2013 to just 7.8% through September 2014. This trend is amplified in the West, where annual gains are cut nearly in half, from highs of 19.5% in October 2013 to 10.9% in September 2014.

The firm said that if the ongoing moderation in the West, still the recovery leader, continues at its current pace it will be a foreboding sign of future declines but added that metro market trends will continue to keep buyers on their toes, as national and regional recoveries wane at varying velocities.

For example, in Detroit discounted opportunities helped push prices up 21.9% year on year in September. Meanwhile the Hartford MSA saw declines of 1.1% over the quarter and 0.4% over the year, highlighting the type of market performance disparity that characterizes the present market.

The data also shows that each of the lowest performing 15 markets posted less than a 1% gain over the last quarter. This group remains subject to short term declines which could eventually turn into yearly losses.

The report also shows that discounted distressed deals continue to dry up, down from a national high of 38.4% in 2011 to just 16.5% in September 2014. While this is generally a positive sign, Clear Capital points out that distressed sales helped drive the investor demand that kick started the recovery.

‘Historically, we’ve observed rising prices as distressed saturation declined. While reduction of distressed saturation is a healthy move for markets long term, over the short term it removes a key demand segment at a time when full buyer momentum has yet to be established,’ the report explains.

It adds that the correlation between drastic declines in price gains and declines in distressed saturation is most visible in the West. Distressed saturation was at an all-time high of 50.5% in 2009 falling to just 12.6% in September 2014. As distressed saturation fell, so did price gains. Yearly price gains in the West have fallen to 10.9%. This nearly 50% drop in price gains since October 2013 is in sync with declines in distressed saturation.

Clear Capital also says that future home price gains are more dependent on owner occupied purchases as the rising price floor and dwindling discounted deals leave investors with fewer opportunities and owner occupied demand is in part driven by consumer sentiment, among other key drivers, like jobs.

While consumer sentiment levels reached a 14 month high in September, according to the University of Michigan’s Consumer Sentiment index, momentum has tempered like home prices. Consumer sentiment yearly growth rates have softened 7% over the last seven months. Each of the last two times consumer sentiment rates have seen negative yearly changes, prices have declined. As housing seeks stability, moderating rates of consumer confidence and price gains foreshadow a third potential dip.

‘Heading into fall, home price gains continue to drop. ‘September marks the eleventh month of moderating gains with home price levels back in line with long run averages. With less fuel stoking investors’ fire and the consumer yet to feel confident in the market, we expect at best either a return to pre-bubble norms or a departure into negative territory,’ said Alex Villacorta, vice president of research and analytics at Clear Capital.

‘If improvements in the job market continue to support a rise in consumer confidence, it’s likely that owner occupied buyers will be encouraged to pick up the slack in housing demand, once held steady by investors. While sentiment data is improving as of late, we’ve yet to see sentiment reach pre-recession levels. Even less encouraging, the index’s rate of improvement is softening, alongside home price growth,’ he explained.

He said that without stronger rates of growth in consumer confidence, price gains could easily fall past the normalized annual rates of growth between 3% and 5% and back into negative territory.

‘This has the risk of invoking a negative feedback loop between falling prices and reduced confidence from potential homebuyers. While the housing market has enjoyed abnormally high rates of growth during the last two and a half years of recovery, prices are back to long run historic levels, signalling an effective end to the correction to the correction. True market growth will be dependent on consumer confidence and re-engagement which will be tested over the next few months,’ he added.

This article was republished with permission from Property Wire.

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